Last month, billionaire investor Warren Buffett complained that he didn't pay enough taxes. President Obama responded by proposing the "Buffett Rule." He wants to put a tax rate floor on Americans who earn more than one million dollars. "Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett," said the President. Of course, this assumes that Buffett is the rule and not the exception. What are the effective tax rates for different income groups? Do the wealthy really pay taxes at a relatively lower rate?
We can answer this question easily enough by looking at the numbers. Here's a chart I constructed from IRS data from 2009. It shows the average effective tax rate for various income ranges, which is easily derived by dividing the amount of taxes paid by each group by the adjusted gross income they earned:*
This is a pretty interesting chart for a few reasons. For starters, it dismisses the theory that wealthier Americans generally pay a lower tax rate than middle- or lower-class Americans. The rate increases pretty consistently all the way up through those who earned up to $5 million per year. Then, it bends back a little, presumably because the ultra-wealthy do have more capital gains income, like Mr. Buffett.